francine: yen and gold stall. drawdy plans to speak. falls, investors expect more from the central bank. pboc, the yuan surges. "surveillance"rg with guy johnson.

we are reunited and stocks are up, what a difference a day makes. it is a two day gain since 2011, banks are up. i wonder how long it will last. guy: i spoke to a number of people this morning and they do not think this will last until the end of the week and that it is a knee-jerk reaction. that was certainly the view that was held. francine: let's get to the bloomberg first word news. a: global stocks extended their rebound to kick off the week, gaining traction amid losses that a their market was expected. the stoxx 600 appears headed for its biggest two day advance in more than four years. hsbc has decided to keep its global headquarters in london,

saying the u.k. is a globally connected economy. ceo said in a phone interview that written leaving the eu would affect the bank the most. u.k.has been based in the for 23 years and says remaining there is the best option. banks are taking a hatchet to their bond trading businesses and the biggest casualties are the people with most experience. banks largest investment -- that is according to data compiled by michelangelo search. scalia, one of the most powerful conservative voices in the nation's highest court, he was confirmed dead by the marshals service on saturday. justice scalia with 79 years old. the second death and the nation's highest court is evenly

split between government and democratic appointees. it sets up a huge political challenge between republicans and democrats over the next -- over whether the next employee appointedee should be during a presidential election year. >> i do plan to appoint a successor in due time and there will be plenty of time for me to senate to for the give that person a fair hearing and a timely vote. these are responsibilities that i take seriously, as should anyone. they are bigger than any one party and they are about our democracy. other mitch mcconnell and republican leaders are insisting the next administration should make the appointment. it is president's day and the u.s., meaning stock and bond markets are present -- closed. will have thea

first u.s. summit in california. day,l news 24 hours a powered by our 2400 journalists around the world. francine: thank you so much. this is your data board. stocks in theand u.s. are closed, but in europe it is exciting. banks are leaving the game, 3.5% higher. i want to show you gold and the japanese yen. as guy was saying, this may not last through the week but you can see gold is down, the japanese yen is down. japanese yen at 113.95. guy: everything has been beaten up or bought. let's show you what is happening with euro-dollar, this is what is in front of draghi. the portuguese ten-year backing off the 4% level.

that is the biggest move since 2005 in u.s. dollar-chinese onshore. look at what the nikkei did overnight, up. 7%. francine: it is incredible. the biggest gain in seven years after plunging 3% next -- last week. we are joined by marvin barth. bosomworth. marvin, what is going on with the market? it seems one day we are getting 10% and the next day we are losing 20%, and nothing fundamentally is changing other than market apprehension. andrew: we have had market apprehension hanging over the market the entire year and i think people have been reticent to take significant positions. as a result, that has taken some short-term volatility.

you, -- against guy: it is because of the risk offices. look at what central banks are doing and look at the market reaction at the moment. is that what has changed? they go negative in japan, the exact wrong direction. there is a lot of nervousness around that. it is the belief in central banks that they are starting to change. marvin: there is a broader issue that is a question about global growth, background concerns about china. some softness in u.s. data. we do not particularly agree with that but some people are starting to be concerned about whether the last engine of growth is rolling over. as you point out, there is this question overhanging markets, our central banks running out of tools? when you move to negative rates it has a negative effect on

banks. francine: andrew, what is your take on this? is the route over or are we going to see much more volatility day in and day out? andrew: good morning, good question. is this a quick, short reversal or is there a longer ongoing trend? i think we have to sort of backup to what was said before, what is in the background driving this, the regime change in china. china is moving away from an export oriented economy toward domestic consumption. that is sending out the deflationary waves across the world and i think what will dominate. what we are seeing is probably just a short-term bounce, more of a relief rally than a fundamental turnaround. guy: andrew, is the only asset to own therefore volatility? a verypears to be

substantial change, is that the only thing you can rely on? volatility is probably going to remain elevated in this environment. in the eurozone, it is a very pressing question, where can you hide? those negative interest rates in the money markets make a very difficult choice for euro-based investors, and even if they look to hedge and take foreign-currency exposures and hedging back to europe, you still come up with negative rates. volatility probably will stay high. i think it will stay high for sure. francine: the problem when you look at volatility, let's say you are a ceo. how do you make your decisions and how do you rationalize your decisions if you are a ceo? guy: it is a bit easier for them.

he is not driven by volatility on a day-to-day basis. he said, i am trying to run my business on a 24 year business. that is the kind of timeframe he is thinking about. francine: it puts extra pressure. when you look at volatility, what does it mean for the fx strategy? this goes back into the ceo's world on the hedging currencies. marvin: for the longer-term investors and ceos, as guy mentions, they have to kind of look through this. their main businesses are something else so they are just looking to bound volatility which means they should be buying options to hedge that risk. for the rest of the world, it means something interesting. one of the things that we have seen that has been a relatively new development has been dollar weakness. some of this is probably related to this volatility, that as

people become more risk averse there is a natural home bias that pervades their behavior. as andrew says, it is hard to find what to buy in europe but still people want to come home after all that dollar investing because they are nervous about the volatility. francine: marvin, thank you so much. up next, we will discuss what is next for mario draghi as he prepares to speak before the european parliament. this is bloomberg "surveillance." the markets are europe -- in europe have gained some 3%. ♪

francine: you are looking at live pictures over the millennium bridge, i think a

little bit to your left is h sbc that hsbc headquarters. a sigh of relief can be heard from down the street. let's get to the bloomberg business flash. nehra: china's trade numbers for january underlying the challenges facing the economy. exports fell and imports declined that left a trade surface of more than $63 billion, the biggest on record. it suggests the currency's six month depreciation has yet to boost the competitiveness. allegations that the ceo,affer wrote to the saying the company could not provide an explanation and that u.s. regulations would probably investigate. they admitted that some vehicles have been fitted with software

to eat admissions tests -- beat emissions tests. pinning their hopes on china as orders from india and other southeast asian country slows. chinese air lines will require about 3000 new planes in the next few decades. that is about 17% of the global total. guy: what can we expect from ecb president mario draghi's speech in brussels later this afternoon? just lack has the answer and joins us from frankfurt. i know march 10 be a big day and we are going to get some sort of policy change. is he going to heighten that into his patient today? jeff: good morning. i think the task at hand is really to instill a little bit of confidence in the underlying path of the economy, doing that right overpromising on stimulus.

we saw what happened in december when he overpromised and under delivered. that is certainly something the ecb will be trying to avoid. francine: jeff, what does he need to do to convince the markets that he means business? there was a day he would come in and the markets believed him. is it just that more difficult because of the central bank environment or because he said it already so many times? jeff: i think you have hit on something there. there is less confidence in the ability of central banks globally to be able to artificially push the economy long. in europe it boils down to at the moment negative interest rates. that was seen previously as a positive stimulus measure, by now having the volatility that we have, if there is a big negative interest move that could be taken negatively by the

market. us, jeff black, still with pimco's andrew balls and worth. -- buzz and worth. bosomworth. andrew: i think -- marvin: it is possible they will cut another 10 basis points. it is largely priced in. we talked before about this home buyers affect. i think people will refocus on some of the interest rate affect and that will have more of an impact. even though you are to have that , more than 20 basis points over the year, we think that will start to have an impact. francine: what can the ecb do, especially since they are buying

so many bonds of german debt? andrew: they can provide the banks with liquidity. the market is telling to call into question the efficacy of negative interest rates and the ability of the ecb to keep on purchasing assets, so one thing came out of the conventional toolbox, the long-term tender refunding operations. have conditions attached to them. one thing the ecb could do is maybe relax some of that conditionality, or just simply introduce another no conditions particularly what i think some of the periphery banks would do give another markets are trading. guy: wide-out they just step up and buy credit? wouldn't that be a logical next step? andrew: i think that is a much higher bar for the ecb to cross.

the ecb is linked entirely to , it lends onector the liquidity it means and it prefers to do that on a collateral basis as opposed to outright. structure, capital government bonds, securitized assets. i would not rule out the ecb purchasing bank bonds or even bank stocks, but that is probably as we did right into the bottom of the toolkit and we are not quite there yet. guy: the ecb is also the regulator as well. andrew is going to stay with us, marvin is going to stay with us. you can tune into full coverage of the ecb street by -- speech by mario draghi later. this is bloomberg surveillance on bloomberg television. ♪

francine: banks are rallying in europe. that is sending the stoxx 600 up like 2.8%. european stocks heading for the best two a surge since 2011, optimism is sweeping through european equities, carmakers rebounding. this is president's day so u.s. incks and bonds are closed. the ft, the years on crisis may

look less frightening than the original but it is worse in others. the bond yields are not quite as high as they were. banks have lower levels of leverage. andrew bosomworth is still with us as is marvin barth. have yields and europe dropped to low and what does it mean for pimco's strategy? andrew: given the inflation levels, the outlook for inflation, what the ecb is doing, i would not conclude that yields have fallen to low. as far as the periphery is concerned, i think it is a relatively safe position in terms of the yield one can get there versus core country bonds. that is a long-standing position we have been running. we stick to that position. i would view the widening we have seen in recent days and weeks marvin opportunity than a reason to hit the panic button. guy: andrew, portugal 20 basis

over germany, spain 143. you would be comfortable buying at those levels and adding to the positions? andrew: to start a portfolio from scratch, yes, i would be buying into some of those positions. guy: what would it take for you to sell them? when you look at what is coming down the road, and to fran's support -- point about wolf game, what triggers are you looking for? andrew: the most important theyer is the price if were to get to an extremely tight level, that would be one of them. on the other side, there are a few things on the horizon that i think we have to be cognizant of. pimco, shouldof we treat these government bond securities as treasuries or credit? we view them as credit and one

is on my radarit screen is the implications of what happens in the u.k. with the referendum. if the u.k. does vote to exit the european union i think that will motivate a lot of the fringe parties to hold a referendum. we could see some capital flow out of the monetary union in the event of the u.k. exiting the eu. francine: marvin, how do you model the brexit? marvin: this is the view of barclays analysts, not barclays, but one of the things we have highlighted to clients is exactly andrew's point, this is not as much about the u.k. -- the u.k. is involved -- but this is really about europe. global, it is the major risk event on the horizon. this is a project that has been 25 years in the making. if you have one member leave and

set the precedent for how to do that, you effectively have 27 other countries that all have right and left parties agitating for independence from the european union, roll the dice. the chances that somebody comes up yachts the as high. francine: thank you very much. thank you so much for joining us. china,, we talked china's largest currency surge in more than a decade. we will be joined by jonathan fenby. this is bloomberg surveillance. we have market checks every five minutes. stocks and bonds in the u.s. are closed. ♪

guy: welcome back, let's get you the bloomberg first word news. nehra: global stocks extended their rebound to kickoff the --k, gaining traction amid

asian shares rallied the most since 2009 and the stoxx 600 appears biggest desk for its biggest two day advance and more than four years. the kremlin has given the green light to the u.s. on a possible cease-fire and humanitarian aid shipment due to take effect this week. it keeps alive a chance to solidify outside solutions. arabia has moved fighter jets to a turkish airbase and is offering its special forces for a possible ground offensive in syria to battle the islamic state, according to the saudi foreign minister. this comes as syrian government troops advance with the help of russian airstrikes. u.s. supreme court justice antonin scalia died this weekend

, meeting the court is evenly split join republican and democrat. 11 months before president obama leaves office sets up a huge political challenge between republicans and democrats over whether the next appointee should be selected during a presidential election year. >> i plan to nominate a successor in due time and there will be plenty of time for me to do so, and for the senate to fulfill its responsibility to give that person a fair hearing and a timely vote. these are responsibilities that i take seriously, as it should everyone. they are bigger than any one party. they are about our democracy. mitch mcconnell and other republican leaders are insisting the next administration should make the appointment. it is president's day in the u.s., mating stock and bond markets are closed. president obama will be greeting

leaders from the association of southeast asian nations for the first u.s. summit which kicks off in california. i am nejra cehic. francine: thank you so much. the yuan surged the most in a decade. we are joined by china research director jonathan fenby and marvin barth is with us. when you look at china and you look at some of the data and exports, exports were pretty uncomfortable, they were much lower than expected. jonathan: you have to have the the chinese it is new year and data is distorted. undoubtedly, exports are on a lower trend and import even more so, so there is still a healthy trade risk. the pboc probably counted on that. with the head of the pboc,

what was he trying to achieve? jonathan: he was trying to say it is not as bad as you think, do not worry about a hundred billion a month outflows, it is going to be all right. he has to come out and say it and we had not heard from him for months and months, where you would of thought with all the fx turmoil he would've been out front. francine: it is a little bit like deutsche bank. of whereepends on kind you stand on the longer-term china story. how do you read what is going on, do they have a handle? or doneed to be patient you think the pboc will mess us up? marvin: there's a question of whether they will mess it up or eventually lose control. i think to jonathan's point, one of the things that they are

learning how to do is better communicate with markets. we have seen the have had a problem with that. joe had been out there on a more regular basis, this would have been perhaps less of a risk event. this unfortunately worked out for them. people took confidence in it rather than seeing the opposite message in it, but the long run issue is that they are seeing significant capital outflows. it is eroding their reserve base and the question is how long can that continue. we expect them to stick with this policy throughout the end of the year, but because their focus focused more on the effective strange rate -- a strange rate, that leads to -- exchange rate, that leads to a rise on the dollar strength. guy: is this changing the economic plan? jonathan: one reason why we did not see governor joe, my analysis the last six months as

bennett that the politicians, -- has been that the politicians, the communist party are actually determining economic policy. whereas they used to leave it to the government and the technocrats, now the politicians have taken over and they are not reform minded. we are waiting for the new five-year plan, which will come out in march. i think it is going to disappoint quite a lot of people. francine: what do you make of the one question mark will the strength -- of the yuan? will the strength be reserved? jonathan: they are no longer by reference to the dollar. they are not bound by that. they are leaving themselves a lot of room. a lot of this depends of course on what happens to the dollar. guy: this is about the fed. jonathan: this is really all about the fed and the dollar.

they are hoping there will be a weakness in the dollar which will enable the yuan to be stable. then they will gradually depreciate that by bit when the market's tensions are off them. the problem, the market's attention has been on them all the time for the past few months. marvin: i completely agree with jonathan. i do have a question. how much of this is, they saw what happened to the japanese yen over the last couple weeks and saw that, the yen is a currency that people -- appreciates when people are scared and yours depreciate. is there any kind of rivalry that says, we have to come out of the holiday with a big appreciation move? jonathan: i think so. new five-yeare

plan, are they going to go to 6.5%, which will be pretty haggard -- hazardous. then you may also have to cut interest rates and order to get some of the stimulus working. that will drive money out. you have capital outflows. you have had some measures to try to tighten it. if you want to move your 50,000 and out, you go to the bank it is not done automatically, it is done manually by somebody sitting there and filling out forms. there are all these kind of minor tinkering things happening. it is difficult to buy overseas insurance with a credit card. effectther that has an when you're talking about $100 billion a month, you might doubt it. guy: the rate change at the moment, the delta seems to be really important here. if it picks up and the rate change accelerates, we will get

a policy reaction. how wide is the band on that? jonathan: gradually towards the end of this year. 6.9, i think that will be all right there. the whole question in china is, they want these kind of changes, they want reform, they want a slowing growth and more flexibility in the currency, but they want to be able to manage it. what happened last summer is they were not able to manage it. francine: related to the fed, what are you expecting the fed to do? marvin: we think they will raise rates two more times this year. we think they will raise in june. they will probably be put off from going in march due to some of the recent volatility and concerns about risk, questions about how much impact this has had on growth given some of the data. think thately, we do

the underlying direction of the u.s. economy is going to support another rate hike in june and ultimately at the end of the year as well. we do think they are going in that direction. there is a broader issue with respect to the dollar, is that yes, rates are important, but as we have seen a particular, we were talking about the yen and ,ow the boj is -10 basis points the same thing when you think about the dollar. recently it does look like there has been a little bit of a home bias reversion against the dollar but if things get significantly stressed, if everybody starts to worry about the global economy turning over, dollars are the ultimate safe haven. it used to be a year ago that people thought china was not that much of a risk. now something changed in the summer and exactly the opposite, and in a sense i think people

see china as too much of a risk at the moment, but no doubt that is the sentiment. if you had another big hiccup for the global economy, i would agree with you entirely. you are going to have a big move into the dollar and that will not help the chinese at all. i may, that point holds on the yen as well. it has been seen for the last several years. this risk off has shifted people's view that is no longer a one-way bet. francine: we will talk more about yen next. up next on bloomberg surveillance, it is oils global got -- let. unloads its first cargo ship since sanctions were lifted. european stocks are getting some 3.2%. ♪

guy: saudi arabia is easing rules on bank levies. for more now we are joined by ryan. tois now starting to tinker make life a little easier. ryan: banks canal lens 90% of their threshold. they are trying to make a little bit more in terms of grow credit, grow the economy through credit with the same pot of money, the same pot of deposits, or a little bit less. they are trying to decriminalize

some of the cheating that may be going on. we talked to one analyst who said at the end of 2013 -- 2015, five commercial banks were already above the 85% threshold. francine: how significant is it? the are trying to simulate growth. ryan: the imf says growth will come in at 1.2% but the imf's assumption when they came out with the oil price were higher than they are. it is an economy that is extremely dependent on the oil price and they have to do what they can, where they cam. it is not one magic lever that these commodity-based economies have that they can use to make things right at home so they are spending their reserves to the tune of $115 billion last year. they will be out of reserves in five years time if they keep up at that pace. prices,e raising fuel

they are decreasing spending, and yet the imf says they will have a 14% budget deficit, their widest in a couple of decades. christmas, every other question seem to be is the saudi peg going to go. marvin: not as much as before christmas, but it is still definitely a hot topic. i think that is unlikely to be an issue for this year. -- saudithat the sardi monarchy is ruled by conservatism. they do not gain a lot highlighting the exchange rate a go. when your main export is oil and denominated in dollars, it does not actually help a lot. result, particularly given the strong political connection with the u.s. we do not think that that is under threat. francine: marvin, what does it mean for currencies that are of

course in countries that are very exposed to oil? there is the first cargo ship actually leaving iran today. overall is there a buying opportunity? or we should stay away from them? marvin: we do expect there is going to be some softness and oil over the next quarter. we do see oil prices rising as market tighten. you are seeing a drop off in investment around the world and if we are right on our economic forecast, we should expect that is going to tighten up markets, should provide some opportunities to buy but not yet. we have a bit to go through, in terms of some of the second round of effects of cutting oil workers, and the impact on employment in places like canada, mexico, and elsewhere. , whoback to this huge

should be most worried about its departure? ryan: the russians. the iranians have begun sending fewto europe so there are a kicking around in the persian gulf and the gulf of oman. there is one that has been chartered that is right off of argyll and a couple others in the region, including one that appears to have been chartered by a russian oil company. the issue is the iranians want back into the european oil market. in their absence, the russians took their place. guy: and crude is very similar, isn't it? ryan: it is very similar to some blends of saudi oil, but i think the russians have gained the most. in.the iranians want back guy: ryan chilcote joining us. you can join in -- tune in for full coverage for mario draghi speaking to the european

parliament. ♪

guy: to the markets, let's check

out what is going on right now. euro-dollar 112. we are seeing some of the peripheral debt backing off a bit. we saw a move up on portuguese debt, 4% plus. 2005 levels in terms of the size of the move on the dollar onshore chinese, a huge move on tokyo. let's get you up to speed. nejra: in japan, the topics has soared to its biggest gain in years. there are more doubts after japan delivered some disappointing data. the economy shrank more than expected in the fourth quarter with weak rabbit consumption the biggest factor. stocks soared on the expectation -- corruption of violence on the border with syria triggered security concerns over security risks.

the currency have the biggest decline in a week as turkish artillery units shelled syrian forces trying to seize more territory along the border of the weekend. the u.s. has urged a both sides to halt their fire. banks are taking a hatchet to their bond trading business and the biggest casualties are the people with the most experience. 70% of credit traders cut in london last year. that is according to data compiled by the hedge fund michelangelo search. francine: thank you so much. let's take a look at what we are watching this week. 2:00 p.m. u.k. time, mario draghi speaks to the you economic committee and brussels. we will be bringing you that speech live. wednesday, the federal reserve releases minutes from its january fms -- fomc meeting.

britain'stiation of membership terms. still with us is marvin barth. we have brexit, the refugee house, but actually your barclays has a pretty strong call on yen, 100 by the end of march. what does the governor need to do to stop that from happening? part ofi think that is what was behind our call, as one of the things we have seen is that clearly risk and the correlation properties of the yen are dominating any type of interest rate affect. , 10y keeping of the score basis points of negative rates gave them two big figures to the upside in dollar-yen. that is why we lean and that direction.

we do not see anything that will clear the decks as we discussed earlier, about people's apprehension and the near term. ultimately we think the data well but in the near term this is going to be a driving factor. pointsother 10, 20 basis -- we are calling for another 20 basis points after the march even intervention. intervention has typically not been that successful in the past and as a result, when of the things that we think is likely to happen is that a lot of investors will shift their preferences toward the yen after years of saying that as their dominant short. guy: how fast are the tales on the distribution parts of your call? marvin: huge. we think the risk on both sides is gone. we do think it is skewed to the already but we had

thought that there were significant tail risks involved that couldections, send the dollar-yen much higher. everybody thinks the bank of japan will be dominated by the fiscal authorities. but the downside tale is quite large as well, or kerley large as we accelerate to the downside . if you think that our basic few as to what caused the depreciation in the first place was a ride in inflation expectations, that the boj was able to and gender if you unwind those all of a sudden you're going back to deflation. the yen should not be that week on a nominal basis, and you go back to basically where we started with it. the tales have gotten larger. francine: what is your call on euro-dollar? jonathan: 95. francine: marvin barth of

barclays. coming up on bloomberg surveillance, we have plenty coming up because we will be talking to paul kazarian about his biggest call on the markets and oil. he is a pretty spirited conversation. i'm looking forward to that interview. this is your equity markets. it is president's day in the u.s. so stocks and bonds are closed but the european market is gaining, expecting the biggest gain since 2011. guy: i think we should draw a link. you never know. francine: we are back in two. ♪

♪ >> european stocks rebound.

draghi speaks in brussels. investors bet on additional stimulus banks. what is going to say today. u.s. supreme court realignment. death of antonin scalia creates the potential for democrats to shift course with a 5-4 majority. good morning, this is bloomberg surveillance. alongsideohnson francine lacqua. because the is fun americans are not doing too bad at all. in europe, we're seeing a rebound. the trillion dollar question, does it stay or not? guy: i will draw a link, the americans are playing today. francine: will united stocks go up? ball game.hole other guy: here is bloomberg first word news. global stocks extended the rebound today to kick off the week, dating traction amid

speculation. losses triggering the bear market were excessive. asian shares rally the most since 2009. the stock 600 and europe. the kremlin has given the greenlight to an agreement with the u.s. and other powers on a partial cease-fire due to take effect this week. it keeps alive a chance to solidify assad's position and escalated conflict with u.s. allies, saudi arabia, and turkey. u.s. supreme court justice antonin scully of died this weekend while on a visit to a range in texas. his sudden death means the nation's highest court is now evenly split between democratic and republican room -- appointees. leaveshs before obama office, it sets up a huge global challenge over republicans and democrats over whether the next damage -- appointees should be appointed during an election year.

barack obama: i plan to fulfill my constitutional response ability to nominate a successor in due time. there will be plenty of time for me to do so and for the senate to fulfill its responsibility to give that person a fair hearing. these are responsibilities that i take seriously, as should everyone. they are bigger than any one party. they are about our democracy. mitch mcconnell and other republican leaders are insisting the next administration should make the appointment. meantime, it is president's day in the u.s. which means both stock and bond markets are closed today. barack obama will be meeting with leaders from the association of southeast asian nations for their first summit which kicks off in california. global news 24 hours a day powered by 2400 journalists and 150 news bureaus around the world. data board.is is my european stocks are game. let's bring that board up for you. i want to show you some of the

banks. 3.9%. they were up on friday. on the week, down by 6%. it is a risk on mood. gold down, japanese yen down. maybe a sigh of relief for governor kuroda, but i don't know if it will be short-lived or not. guy: we will wait and see. a fairly epic move out overnight out of tokyo. let's show you what is happening. look at the bottom of the screen. i will start at the bottom and work my way up. big move, biggest moved since 2005 on dollar on short. portugal backing up. widening.spread germany coming back in a little bit. , 1.11 in advance of draghi. francine: we are expecting him to give us no spirit or will he?

will he dropped hints of eminent stimulus? that is what investors will address in the committee in brussels. we saved the best for the hour. it is also the hour for the founder and ceo, thank you so much for joining us. we have a lot to talk about. first of all, let's start it off with how mario draghi is going to look at the markets. if you see the turmoil we saw last week and if you see a reversal today, is that it? does that mean it is by signals or the year markets will remain volatile for the coming months? >> they will remain volatile for the rest of the decade. francine: this volatile? >> if not more. guy: i have a lot of gray hairs already. >> we see european governments so mismanaged that we think draghi has been put in a hard position and will have to drive rates even lower just to keep the continent surviving. guy: because negative rates don't seem to be working out for

kuroda right now. paul: if they hadn't been negative and they had let them rise to fear market values, it would be a massive disaster and they know it. >> you're making the point that you may criticize our lawsuit see because inflation is moving back to target, but his argument as we would have been a depression if we hadn't done that we done. make the point that negative rates have a disinflation artifact are attached to them and as a result, you whether does you wonder whether or not that particular policy or that particular policy is the right or wrong one. the textbooks is -- the banks are doing with the textbooks say they should do. you get a collapse in asset values which has been the main beneficiary of quantitative easing. you get a collapse in consumer confidence which becomes self for secure it i would hate to be a central banker in this environment. francine: i'm still try to figure out -- if we have a eurozone crisis, a second

version, will it be worse or easier? we have new mechanisms in place that should make it easier to deal with. >> administratively, yes. from a clerical, regulatory perspective. we have managers. we look at it from a management point of view. from a management point of view, they haven't changed anything. the same management, the same bureaucrats, the same regulators in place. you don't have management, from american perspective, you don't have management in your governments and regulators. we look at why you add more debt. francine: we have regulators in the usb at we are late to the game. a lot of banks are splitting off. paul: the u.k., as an exception, does not have professional managers working the government to get value for the money which is something you here in the u.k. often. return on assets. in europe, that is not a concept for the government. the government's are now over 50% of your economy. you wonder why your economies are moving. your government is run by

bureaucrats. they are not managing the return on assets. in a position to drive rates lower to compensate for the fact that half of the economy is run by bureaucrats without management. germans have a very complex system of accounting that is based on cash. it is not management. it is characteristic accounting. francine: mark, jump in. is there anyway we can defend europe? i look at the u.s. and donald trump, that is another conversation, but if you look at europe, we are putting reforms through. italy, spain, albeit, the portuguese budget may be forgetting the rolls from brussels. they have done more progress and the last three years then we did the last 15. mark: -- shows you how terrible the last 15 years were. take one example. italian banks and nonperforming loans. it is 2016. it is still not sorted.

a possible solution is quite complicated and very technical which usually means a can go badly wrong, especially when the government is managing it. thanks is a key pressure point that has not been addressed. this is one reason why the u.s. is so far ahead. guy: this is a key channel for you. what does draghi have to do if we know that is something he has a problem with? he knows the italian banking sector as well as anyone oscar he will stand up in front of the european parliament, it problem in brussels, what does he need to do to start that process moving in the right direction? mark: the criticism he has made of european governments and their failure to take advantage of the reading space he has provided, i think yes to become more vocal on that. on his own policies, the market futures and options are saying there is a 100% chance of lower ecb rates this year.

as you said, that policy is not working well. he has to carry on doing more of that because otherwise the market will tank. finde meantime, he's to some way to hold politicians feet to the fire. that is missing from the equation. francine: the problem is we go back to what we are seeing in the united states. it is much more difficult to be a moderate politician in this day and age. put pressure on european politicians but at the end of the day, we have to make sure we don't vote in extreme left or extreme right. >> in europe, have you ever heard the words from a government official called value creation? heard the terms. they run half of the economy, half of the assets, 15 trillion of assets. francine: the german economy is not doing badly. mark: at the expense of everyone else. francine: we could argue the same or the u.s.. germany, the middle in

this is an and sorting economy, a dream. the rates are extraordinarily low. in terms of managing the assets they have, this value creation when you look at draghi and all of these assets, you think when will some politician say, other than the u.k., you have some real paula -- powerful, good managers. every time i go to the states, icy bridges falling down and roads not without potholes. the u.s. is a disaster in terms of infrastructure management. we can get a clean audit. -- we can't get a clean audit. the best is the u.k.. ifr, technical. you have legitimate financial statements. a real balance sheet. people manage greg you look at the systems, we are so happy to be opening up an office in the u.k. because it is like home press. when you meet with government officials, they talk value, value for the money. this is a dialogue you don't have other than singapore, new zealand, china is getting it. no. the u.k. has to take more

leadership or europe. mark: the me give you an example. draghi's proclaim mission is money to the smes are that is where growth concert. the only time i have heard comments on what is wrong with the government approaches he pointed out how long it takes to open a new business in italy. it was like decades -- i exaggerate for affected he'll hear from governments in the eurozone about how they will help smes. it is almost for bowden to en to discussrbod my businesses. -- tone: that is on discuss small business. that is untrue. i feel like i'm defending them. guy: i can sense that the italian is coming out. we are going to carry on this conversation and be nice to the italians. you can tune in for another nice italian, mario draghi. he will be speaking before the european parliament. this is bloomberg surveillance

on bloomberg television. streaming to your tablet, phone, bloomberg.com and the bloomberg terminal.

♪ guy: let's get the bloomberg business flash. banks are taking a hatchet to the bond trading business and the biggest casualty is proving to be the people with the most experience. 70% of credit traders cut in london last year at the 12 largest investment banks had worked in the financial industry for more than 10 years according to data compiled by headhunters. there are claims of the former volkswagen boss was told about the omissions treating defeat devices and lungs ago -- as long ago as may, 2014. they say the vw staffer wrote it

to say the company couldn't provide an expedition for elevated nitrogen oxide levels and that u.s. regulators would probably investigate. vw admitted last september that some engines have been fitted with software to beat admissions tests. turkish stocks declined the most in the world after interruption of violence on the border syria triggered could -- security concerns over escalating risks. .he estimable index fell -- the istanbul index fell. a turkish artillery unit shelled kurdish-forces. the u.s. has urged both sides to halt their fire. that was your bloomberg business flash. francine: thank you so much. 10 months of deliberations over whether to move its headquarters in return for recommitting to the u.k..

concessions from the british government on regulation and tax. .et's bring back our guests paul, we talked to the ceo of hsbc. he was saying he may relocate about 1000 employees of the tax would happen. you are about to open an office in london. how do you view the brexit debate? respectfully, we think it is political optics. we think the real issue is the u.k. has to take greater leadership in the eu pr that has been our view. very passive righ. you have to do it on the inside. you have to show more leadership you are you have often up to germany all along. the u.k. has an extraordinary history over several centuries of going to countries, whether it is new zealand, canada, wherever, and you put in real, solid systems of financial discipline.

that is a u.k. tradition. you have to export that into the mainland. you haven't. simple as that. that is an american criticism. francine: you think there is no chance that the u.k. will exit the eu? we are going to referendum. paul: we look at it -- it all seems so ridiculous. partners,wo perfect one that doesn't know how to manage their government, one that does not have to manage their government, -- the french are so malleable. what they don't want to admit is that their government's financial system in the constitution says it must be based on business principles. you tell the typical french guy and they hate it. it is not business, we will not be business. it is in your constitution. it says it. they translate it into english. we have a copy and we show it on her ipad. they are malleable. you just have to sit down with them. it is in everyone's interest to

improve the overall progress of the governments. that you the problem maybe don't get when you're an outsider is that we haven't started campaigning. it is unclear to me when we go to the votes it would ever have a date where we go to the votes is exactly what we are voting on. who is a yes campaign and a no campaign. mark: that negation -- negotiation is still happening. cameron and osborne are still making the concessions they need and telling the population they are better within. as paul's point, it is a loose-lose. this is not just the u.k. shivering in the cold and becoming england because the scots are going to say goodbye. the continent loses, as well. there is a strong suspicion that if you were germany and france, you would want to punish us. guy: earlier on, he was making the point that peripherals and plenty of countries will look at this to amp up their views. mark: that is exactly why we were -- we will be punished as

hard as possible by germany and france. you don't want to see britain outside and doing quite well. you want to see britain outside, naked, shivering, and in the cold. that will be very hard to achieve in the rake of a brexit. paul: there is so much low hanging fruit when we look at it. that is a visual term, but you look at the assets lying all over the place that are not being managed. your liability in mainland -- they don't put their pensions on their balance sheet by and large. how do you manage your pensions if you don't put them on your balance sheet? it is impossible. this is the uk's expertise. francine: paul and mark, thank you for now. coming up tomorrow, bloomberg surveillance, high-frequency economics along with foreign affairs magazine editor gideon rose. we will be talking out japan coming up tomorrow. up next, we continue the conversation on japan.

♪ guy: let's take a look at where the markets are. euro-dollar, 1.12. aound the peripherals, we saw big move at the chinese return for the lunar new year making a clear statement with the fixing on the chinese onshore. the nikkei up by 7%. a good a lot of off days recently good risk on, risk off. amen not as ackley known as being more risk on an risk off. he is writing in the telegraph

writing are the markets right to be worried? supposedly, they can look into the future in a cold, calculate, rational way. not for them. swings of emotion that affect human beings in the rest of life. we know that markets sometimes succumb to euphoria. he is making the point that we are getting a little negative here in terms of what we are seeing. we volatility is certainly something that is affecting pretty much everything right now. are we overdoing it? that is the conversation that we as weo be having discussed earlier. volatility is probably the only thing we can rely on right now. francine: if there is a lot of volatility, is there something you can pick out there? or is there so much volatility? paul, you have been active on the market, where do you see opportunities? paul: from a proactive point of

view, not that we recommend this to anyone, we focus on the worst management we can find. not warren buffett, not hedge funds who have the smartest people and invest. we look at them and there are really -- companies were the manager really continue to be very low performing. there are industries and people where they price down. that is good for us, but we don't recommend that to anybody. riskyne: it is a business. it depends on whether the world economy is on your side or not. paul: you can change them. if you can't change them you're stuck with them. francine: mark, do we have to continue to have a conversation about whether we see a global recession, recessionary growth? it goes back to that. we don't know if the fed can hike as much if it says it can. what kind of world are we looking at? mark: clearly, the fed can't. the market is telling you that. the analogy i keep thinking of, i kind of think we are in the back seat of a car that is

traveling and we can't see anything. even the people in the driving seat, it is so cloudy out there, it is so fogged up, nothing is reacting to policy the way it should according to the text books. the data is conflicted in terms of signals. while, labor markets -- unemployment is fantastic, they are in charge. they have the shotguns. effectively. you listen to people with shotguns. labor data says everything is booming, wage data says it is not and the rest is mixed. francine: thank you so much. just as scalia's son death over the weekend set up a political title -- battle in washington, we will focus on that next.

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god: let's universe

word news. me get you the bloomberg world news. shares rally since 2009, and the stoxx 600 here in europe is heading for a two-day advantage in more than two years. the kremlin is given a green light to the agreement for the u.s. and other powers on a functional cease-fire and humanitarian aid shipment due to take place this week. chance tolive the solidify assets and mitigates the risk of escalation of the conflict with u.s. allies, including saudi arabia and turkey. pope francis is celebrating day.o's indigenous he will preside over a mass in three native-language is, thanks to a new mexican degree of approving their use in liturgy.

his five-day trip to mexico is aimed at boosting the faith in catholic states and mexico. he's halfway through his five-day trip t. it's presidents' day, stock market and bond markets are closed today. president obama is leading a u.s. senate in california. global news powered by 2400 journalists and more than 150 news bureaus around the world. haveine: u.s. democrats pushed for congress to vote on the appointment of a supreme court nominee from president obama following the death of justice antonin scalia. republican presidential candidates, including donald trump, weighed in. donald trump: an absolutely sure that president obama will try and do it. i hope our senate will be able -- mitch and the entire group will be able to do something about it. it's called delay, delay, delay. scalia died of natural

causes in taxes over the weekend. greg, great to have you on the program. it's extremely significant, it will probably overshadow his writing month in august -- in office. the potential to shift the court if obama can get a nominee on. we are about significant changes in campaign finance law, gun control, voting rights, civil rights, abortion -- a huge potential with this nominee. given the scale of what you've just described, the politics around this is going to be absolutely massive. walk me through the political backdrop to this, and how it will affect not only what happens with the supreme court, but pretty much everything else. greg: it's really a perfect storm. it's happening in election year. and we have not had an opening in election year in decades.

so republicans have every incentive to prevent obama from putting somebody on the court until the november election. , andhope they will win they will get to choose justice scalia's successor. francine: what is the likelihood that, in light of it almost taking that long? whethera has to decide to take someone liberal who can be confirmed, or someone more moderate that the republicans could support. greg: we are in uncharted territory. much withto say too certainty about likelihood. but i can tell you that it has 1970 since1969 and we had a vacancy for a year on the supreme court. that was not in election year. we are going to see from the court almost certainly a stream 4-4 decisions that the obama

administration is going to be able to show the supreme court used to be operating at full strength because it can't make decisions. you are going to have things on immigration plan, federal appeals court disagreeing with each other. and supreme court won't be there to do resolve the tie, because it will be divided for-four. -4.4 guy: any names that stand out right now? greg: people are talking about the men and women that obama has appointed to the federal appeals court. young people with personal stories. an anti-american, paul watford, african-american on the federal appeals court in san francisco, uyn.ueline win, -- ng people are talking

out-of-the-box nominees that fort be especially hard republicans to oppose. ,ttorney general loretta lynch a senator who maybe has a chance to be confirmed. francine: greg stohr, thank you. we sit here in london and look at the presidential race in the u.s. and everyone says we have never seen anything like this. what did iowa and new hampshire tell us? that it's going to be difficult for hillary clinton to win the nomination? biggers going to be a challenge than she thought going into this. bernie sanders and from, very far ends of the spectrum, were both worried -- both red and gold as 60 days, 90 days. poll sow they both

far, they are pulling on the extremes by 25%. you are getting this almost european kind of spectrum. different types of use. people are so types -- so discontent. guy: does what just happened with the supreme court change the u.s.? we're going to shut congress down here? --getting legislation any any legislation through the hill is going to be impossible. to change the outlook and have any meaningful economic impact? paul: from the perspective of anyone that thinks less government is better -- guy: this is a positive? that allowsng entrepreneurs and business to get a greater command and keep washington out of the business is a plus. that is my bias. whenine: there are cases using the contrary. if you have a weak governance or shut down, investors go out and

clean out whether you are a success for -- a successful entrepreneur or not. notion of a shutdown, and what actually happens, whether they target the air traffic controllers first to make a statement -- from a fundamental assessment point of view, from marketing, r&d, research, management, education -- if you are a good manager and you see this type of turmoil, you just intensify what you are doing to use this as an opportunity to rally your employees to work even more creatively. you should use this is a good manager. you haven'tstion asked is does this mean anything for the fed? and if you were still think about raising interest rates, this kind of uncertainty and politics is going to be yet another reason to do nothing this year. and it will increase those bets on the rate cut this year. francine: this is something that , when you speak to ceos, and

they're going to talk, it means i can drive my employees harder, that we are more innovative. is that really true? or is it just because they ate a management book? paul: if we on these companies and we have these coffers who come in and try and take an excuse from the weather with a suntan or the political excuse -- that's the easiest thing. why do you stay focused on your business and use this as an opportunity? you are working for us, as a stockholder. it makes you wonder why you invest any money in europe whatsoever. paul: there's also some of the worst management we've ever seen in latin america. francine: we're talking about greece next. coming up tomorrow on "bloomberg surveillance," the hike frequency economics, along with gideon rose at 6 a.m. in new york, 11:00 a.m. here in london. ♪

francine: let's get straight to the bloomberg business flash with nejra cehic. u.k. is an: the important and globally connected economy. the decision was passed unanimously in a board meeting on sunday following 10 months of debate. that britaind leaving the eu would affect the banks the most. hsbc has been based in the u.k. for 23 years and says remaining there is the best options for both customers and shareholders. turkish stocks declined the most in the world and the euro slid after interruption of violence on the border with syria triggered security concerns over escalating risk.

the index fell one half point that -- 1.5%. the currency of the biggest decline in the weakest turkish artillery units shelled syrian kurdish forces suspected of trying to seize more territory along the border on the weekend. the u.s. urged both sides to hold their fire. thousands of steel from across the european union and mistreated against the import of cheap chinese products and warned eu leaders not to exacerbate the situation by granting beijing market economy safeness. the accused china of illegal export subsidies and selling products the low production costs, all of which they say contribute to the crisis in the european steel sector. that is your bloomberg business flash. thanks. let's talk about greece. paul kazarian and mark gilbert are still with us. april, may is when i think the next crisis will kickoff.

we will be back in talking about greece in the next recession from the eurozone. paul: we have a minor conflict. we are bondholders. that's my disclosure. issue with the current financial minister is that they are all focusing on -- in public -- on debt numbers that don't make sense. no one uses future face value, it's ridiculous. greece's debt is not 300 plus, it's really only 68. saying they didn't get debt relief in 2016, they did. they got so much debt relief, it canceled out the 21.4.. we should also ask them to give you a copy of paper he distributed in brussels, which i'm happy to do to the eurogroup. he said that number is meaningless, he used it as a

misunderstanding and they should use a much lower number and the that was sustainable. that's what he distributed in private. i have a copy, and happy to share. it's up on one of the websites. this issue of when a crisis -- we're not trying to sell books or get speaking engagements. not saying that he is. to get european policy out of berlin. that i was guy who's a sleepy academic, and then they forced me into government, they seem to be doing a lot of politics. from 7% inat deals november to 11% now, three are from 9% to 15%. how much of that is concerned about them -- the domestic situation, and much is volatility in the selloff? paul: knowing individuals, having finance ministers who tell every investor that listens

that the country is dead, close -- the current one, e.t. tell investors you are bankrupt when you are not. you can answer questions when you don't even know your debt numbers. when people ask you what is your debt number and you don't know it, that scares people. fourth quarter, greece is back in a recession. you see a global market rally, that's hastening the selloff of greek assets. you have pension reform plans being put -- again, people are questioning it. and then you have pressure from the refugee crisis. what is looking good in greece right now? paul: what looks the best for us is the numbers, like the debt hump.- debt it's untrue. it was an error in next all -- in the excel spreadsheet. they don't have that.

they can't management comes to the refugee crisis, they don't have management. will you let them manage? no. the realization that -- mark: can you run the economy without a functioning bank system? paul: you cannot. you have them sell the real estate, and you have cap rates skied off of government bond rates that in the two-year levels is like 14%. you just destroyed your real estate industry in terms of valuation. because cap rates affect valuation. you sit back and go ok, you are also paying 3% on your t-bills. everyone else pays nothing. you have $15 billion, being pushed down the drain. and you look at this as a winter we going to get a good hire in we going ton are get a good hire in place? mark: they were so close to doing it in december. there were candidates names

around, putting someone in charge of reforming the banking system. before there told government came and within two weeks they would adopt international accounting standards. the former alternate finance mr. give a very good speech and had it put in parliament that they were going to do it. and then it just stopped. the execution over that last bit, the last 10% the execution, that's the hardest. greece? that endemic to game,it's like a football that last little bit, they don't have the judgment. francine: you are one of the largest investors in greece at the moment. have you been adding to that in the last two months? and buying what? paul: i cannot say we have not added to it. [laughter] mark: you should be in politics. we are speaking greek? paul: i can't say that.

for us, the upside here -- we just can't believe that -- if they were to announce tomorrow extrahey had just hired extraordinarily capable, globally respectable turnaround manager to come in and work with the country, the first really professional higher, do know what that would do to the stock prices? francine: who would want that job? paul: a lot of people have. we ran this ad for an executive turnaround manager, we have droves of them. it's a pro bono position. there are people there, we have the key stakeholders involved. the government is assisting. we have everyone -- we wind up recommending a short list. the impact of that would be massive. mark: how many on the shortlist? paul: a couple. francine: three or more? paul: a couple. mark: i'm surprised. learn aldman, you

couple of things. in terms of comedic income writing mark carney also iftioned it recently, that you can't explain why it's meaningful, then it's not meaningful. that's really important and how you communicate. you talk to your agencies in sovereign wealth funds, when you have an alternate finance minister who is asked what the debt number is and he says it's $340 billion and you say no. are you ask, she wants on his bank stock, you know this. they lost like $40 million, $40 billion, and he says we didn't lose anything -- how do not lose anything? he says we don't keep a dallas sheet -- a balance sheet, so we don't have to record it. full coverage of mario draghi speech a little later on, speaking in the european parliament at 2:00 p.m. in london, three 5 p.m. in brussels. this is bloomberg surveillance.

we're streaming everywhere. ♪

guy: it's time for the forex

report, let's tell you what's happening in a volatile session. you can see what's happening with the dollar. we've seen one of the really big , and thee dollar yen eurodollar dips below 112. you can see how these two central banks in particular deal with the view on negative rates. has it worked? 77-32.lar ruvell 6.49 is where we are trading for the dollar on sure you and b. rates, paul kazarian and marketable and with us. to helpive rates going the global economy? paul: i don't have a choice to go more negative. think it's the worst option. guy: including the fed? paul: if you look at the u.s.,

and you look at the change in gdp, as a percentage of the change in debt, you are going to see that the more debt they continue to add, they are getting less and less and less gdp. it's not a good recipe. francine: the side effects of negative rates -- we haven't done this before, could be catastrophic for the banks. like we're seeing in japan. they were downgrading some 10% in the last two weeks. francine: it's horrible --mark: it's horrible to be a bank. negative rates are making life rough. guy: it's a double-edged sword. if you are mario draghi, how you look at that? on one end, i'm going to do negative rates. but how i keep the banking sector study? mark: you can have to you just rates. that's one way to do it. that's what japan has done. guy: you talk about the fed, if you look at the features for the fed. mark: a week ago, zero chance.

this morning, less than 2%. janet yellen talked about negative interest rates last week. it's coming down the turnpike. democracy is the worst system of government apart from every other one we've tried. central banks are stuck with the negative interest rate policy. even if it's not working. you asked what the policy that will work, fiscal stimulus. guy: we need to monetize debt before we do that. matters.on't think it i think you need a pact between the central banks and the we havent that say really was monetary policies, is an expanded we've never tried before. and one of the reasons it's not working is because that gap we've given you has not been filled with real investment with interest spending. paul: i totally agree on fiscal stimulus, if it's measured and invested correctly. if you are not going to measure it, and your government going out of control, what gets governments is when they give it to spend for consumption. consumption doesn't return

anything. if you're going to invested smartly, you should have transparency and accountability, so the end of each year, you can say -- at the end of each election cycle, how have you done investing our hard-earned money with incremental debt we put on? if your financial status don't reflect that, then you can't really tell what you are doing. do know the governments don't, by a large throughout europe, don't put castle -- capital assets on the books and they don't have depreciation? francine: thanks for a great conversation. paul kazarian and mark gilbert. tune in for full coverage of mario draghi at 2:00 p.m. london time. ♪

♪ nejra cehic: u.s. markets are closed for president's day, so let's have a look at how european markets are trading right now. we are four hours into the european equity trading session, and the stoxx 600 is up for a second day. european stocks looking at europe's equity benchmark heading for their biggest two-day gain since 2011. up as much as 6% over two days for today.